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NOTE Panel Discussion

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I guess we'll defer to the audience questions after about 15 minutes or so.

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I guess one thing we'd like to start about this morning is, you know, Doug French had

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a pretty interesting thesis about that we seem to be hardwired for manias, you know,

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the way that our brains work.

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And I'm just wondering if any of our panelists had any reactions to that.

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I mean, if we're kind of wired to get excited by speculating investments in gambling and

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short selling, why are we blending this all in the Federal Reserve?

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Does anybody have any response to Doug's talk this morning?

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Sure, I'll say a few words. I think it's important. The Austrians, they don't think that all you

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need to know about is the Federal Reserve and that's the end of the story. I mean, there

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are differences in each of the, you know, we talk about, we think the Fed was responsible

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for the dot-com bubble and then the housing bubble. Well, right there, obviously, to explain

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why did it happen that, why wasn't it a real estate bubble first and then a dot-com bubble,

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you know, so there's more in each particular recession than just low interest rates. That's

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at the end of the story.

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So by the same token, I know a lot of people are into the work of Minsky and others looking

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at herd behavior and things like that.

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And I think it's not like as an Austrian you have to say, oh, you're not allowed to even

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think about that stuff.

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But I think what the Austrians say is what is the necessary condition that allows these

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things to take off, that sure, even under normal circumstances in a pure free market,

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some businesses are going to fail and you could maybe say, oh yeah, those guys got cocky

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If any of the panelists have a comment, just hold up their hand and I'll call on them.

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Any other comments on Bob's comment?

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Well, let me move on to a provocative thing that Mark Faber said during his talk, which

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is they will never tighten, and so we should be expecting a real roller coaster.

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Did any of our other speakers today have a strong feeling about that or are they pretty

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much in agreement that that's the way it's going to be happening?

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I know the mood is that we are going to be on a roller coaster for the next few years

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as far as the eye can see, but is there any hope for optimism?

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I'll just mention that last night we were at a dinner with some people who were very well

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connected on Wall Street and one of them even employed an important former member of the

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The Fed, and the great message from him was the Fed is terrified because for the first

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time since 1913 there's actual interest in them, critical interest.

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People actually don't like the Fed, it used to be just a name on the bill in your pocket

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and now there are millions of Americans who are concerned about it.

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Some of them even realize they're being ripped off and the whole Ron Paul audit, the Fed

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movement has scared the heck out of them.

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So it's a small thing, but they realize they've only been able to operate as they've been

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able to operate sort of under cover as, who was it? Was it Chris who said they were the

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Godhead and the technocratic geniuses guiding us all? But once people understand again that

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it's a rip-off, they may have something to worry about. So I think that's a piece of

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good news.

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I had a third question before I turn it over to some of the audience questions, and what is it that we can actually do in this environment for safety?

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I know a lot of us are really in the position of just being average investors, and we've got 401k plans that we contribute to,

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and we may be thinking after hearing Mark Favre's brilliant talk that we might even want to move out of the country.

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So, some of us are considering that. I'm making reservations right now. Do you have any, I

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know Kevin and I had a discussion about this, about retirement vehicles and things like

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that. If there are any implications for over the last, especially in light of the activity

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over the last couple of weeks for the way that we may be planning our retirement or

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Planning for a Greater Degree of Safety.

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I'll say a few words.

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I think a problem is, and with the people in this room, this might not be as relevant

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for you, but I know a lot of times younger people like in their 20s and 30s ask this question.

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And I think one of the problems is they have in mind, well, I've got my income, that's

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because I work at this company.

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And then their question is, well, where do I put my money?

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And that's what they're thinking.

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And so I try to challenge them and say, it's true.

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You've got to worry about where to put your money, but also start coming up with different

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sources of income, so in case your company tanks and you get laid off, you don't just

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have to start applying for checks from Obama.

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And a lot of people, they don't think like that, and people say, well, what should I

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do?

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Well, I don't know.

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It depends what you're good at.

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I mean, whether it's walking dogs on the weekend or going around to garage sales and finding

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things and selling them on eBay or painting masterpieces and selling them.

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And I don't know what your forte is, but don't just think, well, here's my income, that's

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a fixed number, and then what do I do with it?

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And one thing in particular, when you're in business for yourself, like I've found, as

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I'm a consultant incorporated, one way you can make a lot more income is just stop sleeping.

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And if you just work all week, then, you know, so that's something I've cut out, in terms

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of what do I do with my time, well, stop sleeping so much, and there you go.

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So anyway, I don't have a specific recommendation, I would urge people not to just think that

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My job is my job, and then what do I do with it?

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Thanks for that advice, Bob.

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Kevin?

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Yeah.

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You know, the problem with a conference like this,

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and everybody is super negative, and you can't just, well,

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go out and buy gold.

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The problem is, look at the, I'll give you an example.

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1998, the founders of Google, I mean, they were very young.

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And if they had gone to a conference like this,

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would they have just packed it up and left?

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I mean, you still have to think like an entrepreneur.

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There's still opportunities.

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I think you still have to be somewhat optimistic

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and think that way and not just stick your head in the sand.

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So, okay.

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I was just gonna add at a point to that

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that the government is a very stupid operation.

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I mean, it's not only that they don't attract

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the best people, but necessarily as an institution,

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it's very dumb.

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So it is, the market is constantly outrunning the government.

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The genius of entrepreneurs, of investors, and I see among young people so much more

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interested in our ideas than ever before. I think there actually is a lot of reason

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to hope and we don't, as is often been said, we don't get all the government we pay for,

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thank goodness. But I think the private economy and private genius gives us a lot to hope

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for versus the morons in Washington.

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Thank you. Mark, we had a couple of questions from audience members on whether you thought

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the EU was going to break up and really whether it mattered.

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Well, I'm not sure it will break up. I think first they'll try to save it for a while.

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Eventually maybe the Germans will leave and then the rest of the EU will not be worse

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I just like to mention until November 25th the whole world was very negative about the

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United States and the US dollar and it was a period of euro strength and then after November

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25th I suppose that the euro began to discount in advance the problems that would occur in

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the peripheral countries of Europe and especially in Greece and so the euro weakened and now

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Now everybody is dead negative about the Eurozone and maybe the negative sentiment is somewhat

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overdone because Europe is still a relatively strong economy combined in terms of they don't

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have a large current account deficit. If you travel around the world you see European goods

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everywhere whereas you don't see that many American goods and the ones you see are goods

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In general, I'm not that negative about the Eurozone. Right now, the sentiment, especially

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on the euro, is extremely bearish and everybody thinks it will go to parity, maybe it won't

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happen. Six months from now, things look better. Of course, some countries like Spain, Portugal,

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Ireland, Greece, they do have problems and in the long run, all Western European countries

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will also have the unfunded liability problems the US will also have.

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So I mean, I don't know, it's a race or it's a contest of the least bad.

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I'm not sure who is the least bad, they're all about as bad, but I mean, I thought I

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Well, we'd like to open the questions up to the audience, and I believe we've got someone

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with a Microphone, if I'm not mistaken. So, where's Bill Lagner? Bill, give Bill the honor

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of the first question here if you, Bill is Kevin's partner at Bearing Asset. Knowing

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what happened with Lehman Brothers in the fall of 08 when that was kind of the first

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experiment of letting one of Wall Street's former chosen ones go and essentially a run

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on the System. Do we actually go into a period of time where we stop trying to prop up incredibly

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insolvent governments and actually go through some type of a default process?

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Is that directed toward any of the panel members? Would anybody like to take that on? Your question

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is about the Greek, the potential for any of the sovereign governments to start defaulting.

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I think that in the case of Greece, they didn't really bail out Greece because Greece is a

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minor player in the global economy and one could easily absorb the losses of Greece.

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But the problem is that French and German and also Italian banks, they had a lot of credit

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Exposure to Greece, and they had a lot of credit exposure to Spain, Italy and Ireland.

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And so if Greece fails, then the credit spreads on the other bonds and loans to Spain and

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other big countries widen and the problem could then snowball. That was the idea. But

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basically they didn't bail out Greece, they bailed themselves out. That I think will be

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with a pattern, as Lew remarked, it's governments that want to stay in power and postpone the

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hour of truth. So they basically bail themselves out with all kinds of monetization packages.

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In this context we should also be aware that dealing with a potential government default

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means that societies have basically to make a decision where the system is getting deflated

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– which would necessarily be the case if you get write-downs on government debt exposure

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in bank balance sheets or whether governments try to prop themselves up by issuing more

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money and credit.

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In the case of Europe at this juncture, the idea is that the financially stronger, supposedly

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stronger countries prop up the weaker countries and that of course means the transfer of economic

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resources from one country to the other. It's in breach of an essential pillar that basically

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institutionalizes the single currency area. You know, if you get a write down of government

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debt in bank's balance sheet, then it can easily happen that the equity capital of the

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banking system is gone. So if it is gone, then basically the government has to turn

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to the savers, the holders of bank liabilities in the form of savings and time deposits and

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bank debentures and they have to make a capital cut.

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And that of course is a deflationary effect, it's one strategy to get rid of let's say

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the debt problem, but it's a deflationary impact and the question is are governments

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is prepared to end a decade-long development of money and credit supply increases.

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At the moment, they try to prop themselves up by issuing ever-greater amounts of debt.

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For instance, the government of Germany is going to support the $700 billion support

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package for the single currency by around about 150 billion euro.

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That's around about 5% of GDP.

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It's a huge number and people hope that this guarantee is not going to entail a real cash

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payout but it shows you that at the moment the deflationary alternative is not really

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on the agenda and that would, you know, if governments continue the way they do at the

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moment, at the end of the day they have to print money.

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How confident are you in the central bank's ability to get the policy decisions right

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in their ability to inflate, and whether the bank regulators in Europe will be as draconian

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as the Fed was to the US banks in forcing them to raise capital?

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What's the chance of a policy mistake?

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Very high.

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I wouldn't hesitate to say that the chances are basically very high that policy mistakes are being made and they have been made in the past.

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And again, the question is, are we going to see a deflation of the system or attempts to inflate the system further and further?

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When you look at history, monetary history, and in particular Germany, I think, provides an insightful period, namely the period of 1923.

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You can see that if things are getting out of control, if, let's say, the distortions caused by fiat money come to the fore,

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namely by higher unemployment, by declines in production and people getting disparate,

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then printing more money is obviously the policy of the least resistance and I

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think that the danger is clearly there once you have adopted a fiat money system

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when you look at monetary history there's hardly any fiat money system

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which you know you know ended in in the paper currency being you know having a

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higher purchasing power than then at the start of the system yes actually I'd be

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I'd like to ask a question for the audience because there is this huge debate between

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the inflationists and the deflationists. Who among you thinks that the governments will

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succeed in inflating the system before it collapses and who thinks that it will collapse

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before they manage to inflate? So first, who believes that they can manage to inflate before

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Before the final collapse happens, and now who believes that they will fail to inflate?

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So all of you own long-term U.S. government bonds.

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I just wanted to add, so far our fiat money has been produced through the commercial banking

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system extending loans to private businesses, households and the government.

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The banking system is in pretty bad shape, equity capital has declined, so they cannot

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take as much risk as before, and maybe the stockholders of the banks, they're smart people,

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they do not want to get into this kind of business before the crisis.

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But the central bank can buy government bonds, they can monetize, and as Dr. Farber says,

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That is a route open to any government, to any central bank. If the political mindset

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is and the public opinion is in support of it, that more money improves our state of

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affairs, I have no doubt that they are going to succeed in increasing the money stock in

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the economy.

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What about you?

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I think right now there's sort of a trade-off where they are in the United States. Bernanke

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is always about six months behind what's actually happening.

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And so there we had that problem back in 2008 where it looked as though we were actually

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going to face deflation.

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But then after they, I don't know what they do to them in the stable and they dragged

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them out and then he was able to inflate ourselves into the nice stock market run.

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And now I have a feeling that we're heading into that period where he's gonna be behind

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and Deflation.

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But then he will catch up again.

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So we could be going through one of those valleys that it's going to look like we're

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heading into deflation, but in the end we will inflate.

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Yeah, if I could just jump in really quick.

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It's true that the Fed, and I've heard this argument that men don't know how hard the

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Fed pushes, they can't get the banks to lend because there's capital constraints and things

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like that.

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In support of what Robert said, back in 1923 in Germany, there was a natural limit to the

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increase in the money stock. At that time, they had paper notes and they started printing

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and there was then shortage of paper notes. And so they started printing, you know, numbers

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Next question, this gentleman right here on the aisle.

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I had a question for Lew. You had mentioned in your comments on freedom that our tradition

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comes from the British common law system. Can you give us a quick comment on your analysis

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of the original Articles of Confederation compared to the Constitution that we have now?

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Well, the Articles of Confederation was probably the closest thing to a libertarian government

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that's ever existed. And it's worth looking at. There were actually a number of presidents,

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The government that couldn't raise taxes without the consent of all the states.

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It was a government that was very difficult for it to get involved in wars, very difficult

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for it to do the things that we think of as a government doing.

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And so, of course, there was a movement by the Hamiltonians, Tom DiLorenzo's book on

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Hamilton is very good on this, how the Hamiltonians set out to try to duplicate the British mercantilist

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system without a king in this country through the Constitution, and they did.

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The Constitution, of course, was sold as a great freedom document, but at least as compared to the Articles of Confederation it was not.

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Hans Hoppe holds that every single adoption of a Constitution in human history has been the result of an increase in centralization and state power.

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So I take Hans' word for that. Certainly that was the case with the American Constitution.

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So even though it looks like a utopia of freedom to us today, no question the Articles was better,

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is better, but it was a huge restriction on the growth of the central government and there

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were people, Charles Beard in his famous book writes about this, there were people who stood

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to make vast amounts of money if the new government was going to redeem all the continentals and

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the state notes and so forth that have been issued during the war. They did. So, Governor

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Morris and all those guys made vast amounts of money from the Constitution. It won't surprise

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and Special Interest, The Articles of Confederation Far From Perfect, The Propaganda that we need

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into the Constitution to prevent state tariffs and state protectionism is just not true.

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I mean, you can only think of a primitive small economy like the economy of Massachusetts

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or Virginia or whatever in those days. Had they actually had protectionism, everybody

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would have starved, or at least they would have been, even by the 18th century standards,

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a very primitive barter level. So it was all propaganda. We didn't need a more centralized

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and More Powerful Government. Unfortunately, we got it. But take a look at the articles.

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Very interesting.

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This gentleman standing in the back.

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I live in Brazil part of the year, about half the year, and in the U.S. the other half of the year, and I'm kind of different.

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I actually served in the military and would take a little bit of umbrage with your comment about public service.

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I think it might do some people some good but one of the things I'd like a point I'd like to make is just that Brazil when it got its independence or took its independence it was a rather peaceful independence but they had all the separate states I think they have 27 states including a federal district which they modeled after us after they gave it up from Rio and and it's a very was in becoming less so a corrupt country but it was but one of the problems early on was is that each state had a

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Cardio, like in Argentina, and that cardio controlled the state. And if you go to the

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northeast where the Brazilian government first, or the Portuguese government first settled

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and started, that's where most of the corruption is. So you've got a kind of a, I might even

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say...

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Do you have a question, please?

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Well, the issue is, is that it doesn't always work the way we intellectuals think it's going

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of Work. Sometimes you get totalitarian codeos in these states, and they rule it for their

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own good, and they retard the growth of the country. And that's one of the reasons why

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Brazil was so retarded, and it's one of the reasons why all of South America is very retarded,

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is because...

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Okay. Well, that's what you get when you're a contrarian with contrarians.

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Lou, would you like to...

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Well, I appreciate that. I might just say, I don't know why public service is only service

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with the Parasite. Why is people being paid by money that's taken by force from others

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considered a public service, whereas entrepreneurs, business owners, investors, parents, clergy,

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all of private society, that's not public. Why is that not, that's real public service.

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That's a service that actually, that actually provides civilization.

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I'll just mention one quick thing about Brazil. It's a great country. I was amazed to find out when I was down there that the state of São Paulo fought a war of secession in the 1930s against the central government, against a tyrannical central government. They were defending a much more libertarian constitution. They lost that war, unfortunately. But in the south of Brazil, where all the Germans live, by the way, there's a huge amount of interest in decentralism, in even secessionism.

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of Hope for Brazil.

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Yes.

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If there is to be an Austrian revival, will it come primarily from the private sector

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or from academia?

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I guess I'll jump in.

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I was in academia briefly and I became partly disillusioned.

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First of all, I didn't get a real plush job somewhere, so I figured, well, these guys

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are crazy.

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I thought this was a plush job.

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Oh, well, that's when I left.

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That's when now I'm in the plush job, that's in the private sector.

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So it's really difficult in academia. I mean, it's partly a joke, but I mean, if you publish

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a journal article that takes four years to get published because the referees, they'll

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get the thing and sit on it for six months. And then you email them and say, oh yeah,

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I forgot about that. And it just takes forever. And then when it does get published, the five

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people in the world who really know that subject read it. So it's a very slow process. And

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the strategy is there that, okay, we're going to get Austrians and then we'll get them placed

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at a higher tier school than we used to have a generation ago and then they'll teach some

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students in maybe a hundred years from now, we'll have a few guys at MIT who are familiar

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with Hayek, right? And I'm not saying that to make fun of it, but I'm just saying if

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you think society's on the verge of collapse, that's not going to work. You know, I mean,

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there's going to be one world government before we get there. So, you know, there's people

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thinking that we got to do something else and go through the masses and talk to the

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business community.

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Yeah, I have something to say, because I was in academia as well, and I'm inherently a

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petitioner. I'm a little more bullish on it. I mean, I think looking out today and seeing

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300 of you, many of you younger, I think you're going to dictate what the universities do.

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So, for example, within the next five years, I mean, I don't see Harvard putting on an

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Austrian economist onto their board, but you know, you get enough of their alumni who kick

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take into the fund every year demanding it, Harvard will react to it, Columbia will react

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to it, the bigger schools will react to it.

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So I think it is private enterprise and I think once it's demanded from you all, they'll

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do it.

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I mean, they'll come kicking and screaming, but once the funding goes away and those endowed

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chairs dry up and their lucrative research grants dry up, I mean, they're going to listen.

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So I do think it's going to be private market inspired and I think it's going to happen.

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I think we'll live to see it.

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I hope I do.

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I hope I do.

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I was going to say it's both, although I think it's intellectuals as well as the private economy.

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Whether it's, to what extent, it's the traditional university order, which is the same method of organization at the University of Paris in the 11th century,

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although a slightly lower level of faculty, I might say.

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So I think that we're going to see new sorts of academic organizations that are not the old-fashioned universities.

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We're seeing it already with online courses and online universities.

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There's a revolution going on. The universities, which have done so well ever since the GI

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bill through federal subsidies, are all in trouble. Not Harvard, but below the very top

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level. They're having trouble. They're having trouble getting students. They're in financial

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trouble and it's not going to help that Obama wants to spend more and more. The kids are

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realizing it doesn't make sense to go for four or five or six years to some school to

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to get a degree in liberal studies and come out with $100,000 in debt after having not

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earned anything for all those years. It doesn't make sense for a lot of people. So there's

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I think new academic institutions coming up. The Mises Institute is one. There are others.

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So I think the melding of intellectuals, privately based intellectuals and private business world

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is where the hope lies.

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Just to add one thing that I think that we're beyond the education bubble at this point and now it's in a state of collapse and

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you can see the

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absurdities of two-year-olds going to SAT camps and having to fill up six-year-olds with

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things for their resume in order to get into Harvard

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that when you reach that absurd state and the amount of money that's poured into it and with so little in return

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in turn, that we probably will see. I think that if there's a way to short it, I'd short

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Harvard. I have a feeling it will be insolvent within 10 years. Thanks a lot to Larry Summers

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and what he burdened it with. But even the top universities as the regarders of the top

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universities are going to have severe troubles. And the problem is they're not like a corporation

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that can restructure. They are so slow at doing anything, they are not going to be able

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to talk their professors out of getting free cookies after lunch every day. It's going

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to be impossible to restructure them. So it's going to be, I think, completely different

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in about 10 years, maybe a little bit longer, the education structure in the United States.

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We've got time for just a couple more questions. You guys can fight it out for one of them.

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Yeah, does anybody have an opinion about the IMF plans for a global currency? And how does

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that affect postponing or kicking the can down the road this time?

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I think it would be a bad idea.

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I second the motion.

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So I'd like to give David Tice the last question here, we're running out of time, and then I'm going to turn it over to you.

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Yes, I have a question for Mark. Mark, I've heard you speak on a number of occasions, and it seems like this is the most negative that you've been, and also you oriented your response to personal safety and geopolitical warfare, and I share those views, and I think a lot of investment guys underappreciate that.

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Where do you see a potential trouble spot and also do you think upheaval in China could lead to something?

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Well, I'm sorry to say I see trouble spots everywhere, but I mean the issue is I'm not that negative.

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I said I think we're in the end game and we're all doomed, but before we're all doomed, there's a lot of opportunity to make money.

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That's the good news. And it won't happen in the next 10 minutes. So, I mean, you just

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have to think long term that something doesn't add up and that the governments will try everything.

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And I mean, I agree fully with what Lew said today in his presentation. It's not about

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about governments, I've seen that now in Thailand, about governments trying to do something for

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the people, it's trying to do something for themselves because they've grown like a cancer

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in society and so their essential survival is at stake, so that will lead to conflicts

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and in terms of trouble spots, obviously Central Asia as I pointed out, then the relationship

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between the US and Japan has become more difficult. The Japanese were a strong ally of the United

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States in the Pacific and that led to tensions with China. Now I don't know whether like

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Australia they will become more China-centric or whether they will become more Russia-centric

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and so forth. But that is for sure a trouble spot. Then obviously the Chinese with their

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purchases of resources have become for many countries a larger export market than the

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United States. So they have a lot of political influence in Latin America, in Africa, in

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Central Asia, the Middle East and also Australasia. And that again leads to tensions with the

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Obama asked the Chinese to negotiate and tame down the North Koreans.

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Can you tell me how a country that can't even assemble bicycles can have nuclear power without

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the help of the Chinese?

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The North Koreans are a puppet of the Chinese, and they're used by the Chinese to ship weapons

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to wherever the Chinese want to ship them, but not under their own name. Like the Soviet

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Union always used the Bulgarians for the dirty jobs well documented in every James Bond movie.

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Thank you very much for that, Mark. This has been a real personal stimulus package for me. I don't know about the rest of you, but let's hear a round of applause for our speakers today.